CAPITALDIGEST MARKET REVIEW. 06 SEPTEMBER 2021

MONDAY 30/8/2021 – DOLLAR HOLDS NEAR TWO-WEEK LOWS IN FED’S WAKE The dollar stabilized after falling to two-week lows on Monday as the greenback attempted to recover from Friday’s drop on comments from U.S. Federal Reserve Chair Jerome Powell that were interpreted as dovish. The dollar had one of its biggest daily percentage declines of the month on Friday after Powell said tapering could begin this year, but the central bank was in no hurry to raise interest rates. read more The dollar index hit a two-week low at 92.595 before firming slightly, and was last up 0.008% at 92.677. “The market is still digesting Powell’s dovish tapering speech and you are probably seeing the market is a little confused that Treasury yields are not getting the go-ahead for lift-off here, and that is going to be data dependent on everything with inflation and the job markets,” said Edward Moya, senior market analyst at OANDA in New York. Benchmark 10-year notes last rose 8/32 in price to yield 1.2852%, from 1.312% late on Friday as investors began to turn their focus to Friday’s U.S. payrolls report, which will provide more insight into the Fed’s likely policy path. Expectations are for non-farm payrolls to increase by 750,000 in August, with the unemployment rate forecast to dip to 5.2% from 5.4%. Other data likely to be eyed this week include inflation figures from Europe as well as gauges of the U.S. and Chinese manufacturing sectors.   TUESDAY 31/8/2021 – STERLING RETREATS FROM TWO-WEEK HIGH, DRIVEN BY DOLLAR The pound was little changed overall on Tuesday, hitting two-week highs due to U.S. dollar weakness following the Jackson Hole conference before retreating as the dollar recovered during the session. At the conference on Friday, U.S. Federal Reserve Chair Jerome Powell offered no indication about when the central bank planned to cut its asset purchases beyond saying it could be “this year”. The comments knocked the dollar and pushed up the pound -moves that continued on Tuesday, with the pound hitting a two-week high of $1.3807 at 1448 GMT. But as the dollar recovered, the pound gave up its gains. At 1538 GMT, it was flat on the day at $1.3755 . Against the euro, it was also flat at 85.77 pence. Risk appetite was steady, as European stocks shrugged off fresh signs of an economic slowdown in China. Analysts said that trade in currency markets was being influenced by month-end portfolio rebalancing. read more [nL1N2Q21F1] Investors are looking to U.S. jobs figures this week for clues on when the Fed might taper its bond buying. read more ING FX strategists wrote to clients that a light data calendar in Britain and a lack of Bank of England speakers meant that the pound had followed the euro’s rise against the dollar this week. “A break above 1.3800 this week should, if anything, be driven solely by USD weakness, while EUR/GBP looks likely to keep trading within its recent narrow range for now,” ING said.   WEDNESDAY 1/9/2021 – DOLLAR SOFTENS AFTER ADP; EURO HITS ONE-MONTH HIGH The dollar fell against a basket of major currencies on Wednesday after a report on the U.S. labor market missed expectations by a wide margin, while the euro climbed to a one-month high on inflation worries. The greenback fell after the ADP National Employment Report showed private payrolls rose by 374,000 in August, up from 326,000 in July but well short of the 613,000 forecast. A report on weekly initial jobless claims arrives on Thursday and on Friday the government releases the payrolls report for August, which could provide clues about the Federal Reserve’s policy path. “Certainly the recovery has been uneven but if nonfarm payrolls should also disappoint, that would seemingly close the door to an imminent taper and keep the dollar in a bit of a funk,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington DC. The dollar has been under pressure since Friday, when Fed Chair Jerome Powell said at the Jackson Hole conference that while tapering could begin this year, the central bank was in no hurry to raise interest rates. Concerns about rising COVID-19 cases denting the economic rebound could also serve to keep the central bank from scaling back stimulus. Other data showed U.S. manufacturing activity increased more than anticipated in August, but a measure of employment in factories fell to a nine-month low, likely due to a shortage of workers.   THURSDAY 2/9/2021 – FOREX-EURO NEAR 1-MTH PEAK VERSUS DOLLAR, SUPPORTED BY INFLATION SHOCK AND ECB HAWKS The euro held near a one-month high versus the dollar and a six-week peak to the pound, supported by hawkish comments from ECB policymakers after data showed inflation at a decade high and amid signs the Fed is not hurrying to tighten policy. The dollar has been on the back foot over the past couple of weeks as doubts have crept in about when the Federal Reserve will start unwinding its stimulus. Fed chair Jerome Powell said last Friday the jobs recovery would determine the timing of asset purchase tapering. Dovish comments from Powell and other Fed policymakers in addition to data misses have seen the greenback index lose around 1.4% versus a basket of currencies since hitting nine-month highs on Aug. 20. The index was marginally weaker at 92.452 by 0800 GMT, not far off a four-week low of 92.376 touched in the previous session after soft ADP payrolls figures and ISM manufacturing surveys. The euro has in contrast witnessed supportive data flow, including strong manufacturing growth and inflationary pressure from supply-chain snarls. The single currency traded just off one-month highs of $1.1857, buoyed by data showing inflation rose 3% year on year in August, the highest growth in a decade and above the European Central Bank’s 2% target and a 2.7% forecast in a Reuters poll. German bond yields rose to their highest levels since late-July, also pumped up by comments from a slew of European Central Bank hawks including Austrian central bank governor Robert Holzman and Bundesbank boss Jens Weidman.   FRIDAY 3/9/2021 – DOLLAR LOWER AFTER INITIAL JOBLESS CLAIMS DATA WITH PAYROLLS ON TAP The dollar weakened on Thursday following strong labor market data, while the euro remained near a one-month high versus the greenback after European Central Bank policymakers made comments that kept inflation concerns in focus. U.S. weekly initial jobless claims fell last week, and layoffs dropped to their lowest in more than 24 years. Still, rising COVID-19 cases in recent weeks have threatened the economic recovery, keeping the Federal Reserve from pulling back on its massive stimulus. “It was better than expected but it wasn’t enough to change anyone’s views about what is going on, or the pace of tapering or what Friday’s number might be. It was just within the range of estimates,” said Marshall Gittler, head of investment research at BDSwiss. On Wednesday, the ADP National Employment Report was much weaker than expected. On Friday, the U.S. government will report on payrolls for August. Nonfarm payrolls are expected to rise by 750,000, with the unemployment rate anticipated to dip to 5.2% from 5.4%, according to Reuters estimates. The dollar has been subdued on uncertainty over Fed policy. Last Friday, Fed chair Jerome Powell said that tapering of its stimulus could begin this year, yet the central bank was in no hurry. “They’ve pretty much nailed their colors to the mast, they said unless all hell breaks loose they are going to start tapering this year, so we would have to see a massive miss or probably several massive misses for them to delay it,” said Gittler. Other data showed new orders for U.S.-made goods rose in July, while business spending on equipment remained strong, despite supply constraints and spending trends moving away from goods towards services.